Uncertainty over US monetary policy set to linger, S Korean central bank warns

Uncertainty over the future direction of United States monetary policy is likely to persist despite broadly stable financial markets following the Federal Reserve’s latest rate decision, a senior South Korean central bank official said on Thursday.

The warning came a day after the US Federal Reserve left its benchmark interest rate unchanged at between 3.5 and 3.75 per cent, following three consecutive rate cuts since September. The decision has kept the interest rate gap between South Korea and the US at as much as 1.25 percentage points.

Speaking at a market assessment meeting, Bank of Korea (BOK) deputy governor Yoo Sang-dai said factors such as Federal Reserve Chair Jerome Powell’s recent comments and uncertainty over the timing of the nomination of his successor could continue to cloud the US policy outlook.

“Uncertainty surrounding the path of US monetary policy is expected to remain,” Yoo said, adding that ongoing concerns over US tariff policy, the fiscal health of major economies and geopolitical risks were also weighing on global markets. He said the BOK would remain vigilant and closely monitor developments.

At his press conference, Powell said the US economy had grown at a solid pace last year and was entering 2026 on a firm footing, while stressing that the Fed was well positioned to adjust interest rates depending on incoming economic data.

He also strongly defended the independence of the central bank amid growing pressure from US President Donald Trump, calling such independence a standard feature of advanced economies and democracies.

In light of the Fed’s stance, the BOK is widely expected to continue its extended pause on interest rates. Earlier this month, the central bank left its key rate unchanged at 2.5 per cent for the fifth consecutive meeting, citing the need to support financial stability, curb inflationary pressures and manage a weak won.

The interest rate gap between South Korea and the US has persisted since July 2022, prompting concerns that a wider spread could lead to capital outflows and further pressure on the local currency.

The won has remained well below the psychologically important 1,400-per-dollar level and fell to a multi-year low below 1,480 last month, dragged down by a strong dollar, geopolitical tensions and heavy overseas investment by South Korean investors. On Thursday, the currency opened at 1,429.6 won to the dollar, down 7.1 won from the previous session.

With IANS inputs